Monday, 29 June 2015

BRITISH small businesses are calling on chancellor George Osborne to reform and simplify the tax system in next week’s emergency budget.

Good start.

The Federation of Small Businesses (FSB) has asked the government to “widen the scope of reform to radically simplify the tax system and improve incentives to encourage investment”. The small business group praised the seed enterprise investment scheme – a government programme providing tax relief to individual investors who buy into small, early-stage companies – and entrepeneurial relief – a tax break for business owners – for “having a positive effect in stimulating growth”.

Trying to introduce all sorts of tax breaks is not simplification, is it? Our tax code is ten per cent actually saying what will be taxed and the other 90% is a mixture of tax breaks and anti-avoidance provisions. And one man's tax break is another man's tax burden. If you reduce taxes on one favoured group/activity, then 'everybody else' has to pay for it and the whole thing is a negative sum downward spiral.

And they are making the usual mistake of confusing real investment (in R&D, training, advertising, plant and machinery) with financial investment (paying money from a private bank account into a company bank account). If there are profitable real investment opportunities, then people will make them, wherever the money comes from.

But the FSB put pressure on the chancellor to ensure that the Treasury’s review of the business rates system “delivers a new, fully reformed system that is flexible, fair, transparent and efficiently adminstered”.

That's contradictory nonsense. If a tax is fair, transparent and easy to administer (i.e. Land Value Tax) then all the landlords and owner-occupiers squeal that it is "inflexible".

What they mean by "flexible" is shifting the tax burden off land and onto e.g. corporation tax, which would have to go up from a nice flat 20% to 35% or 40% of profits to replace Business Rates. Call that "fair" if you like, but is it "fair" as between landowners and wealth creating businesses?